The Central Board of Revenue (CBR) move to suspend sales tax internal audit for six months failed to achieve the desired objectives as no desk-audit of units was conducted on the basis of 'industrial notes', which have not been finalised yet. Informed sources said on Wednesday that there were strong chances of resumption of audit in May 2005 as nothing has been achieved through desk-audit. The winding up of desk-audit exercise will make the auditors much more powerful as they will again carryout audit without any procedural change.
The resumption of sales tax audit in these circumstances will harm the taxation system, as major stakeholders including the CBR Audit Wing and Sales Tax Wing are miles apart on audit selection criteria, officials added.
When this correspondent contacted sales tax officials for comment, they said that certain quarters are portraying wrong picture of desk-audit, which is underway in the field formation. It is not correct that the desk-audit is not being conducted.
Insiders said, the CBR has started receiving signals that suspension of sales tax audit was not a positive decision in the first place. There is possibility that the suspension of audit may result in revenue implications. In January 2005, 62 percent GST collection was from import, whereas 38 percent was from domestic consumption, which shows 4 percent decrease as compared to the previous fiscal.
Sales tax officials negate the allegations saying it is a wrong impression that audit suspension has resulted in any decrease in domestic GST collection. A number of budgetary relief measures, including withdrawal of 3 percent further tax, zero-rating on ginned cotton, increase in exemption threshold and zero-rating of plant, machinery and equipment have resulted in a slight decrease in domestic GST collection.
Moreover, they added, if the audit suspension has anything to do with the domestic GST collection then why the revenue showed substantial increase in the months of November and December 2004 as compared to the same period of the last financial year. The audit was suspended in November, but no negative implications were seen on the sales tax revenue.
"How can you attribute this decrease with the situation arisen due to audit suspension. If we include the taxation relief measures given in the previous fiscal in projected figures for the current fiscal, the additional growth would certainly be 20 percent on the sales tax side.
Billions of rupees were collected as sales tax from ginned cotton in 2003-04, which is not included in the figures of the current fiscal. Approximately Rs 17 billion were collected from 'further tax' in 2003-04, which are not included in revenue collection data of 2004-05", the officials said.
Other sources said on the matter that when the sales tax audit was suspended, the CBR claimed that only desk-audit would be conducted through analysis of the sales tax returns. It included sector-wise analysis, input-output ratio and other tax-related data available with the Sales Tax Department. On the other hand, the problem started when the CBR simultaneously gave the assignment of preparing 'industrial notes' to several members, including Member Audit, Member Fiscal Research and Statistics, Member Sales Tax, Collectors of sales tax and central excise and sales tax auditors, which scattered the work and 'industrial notes' were not finalised.
Secondly, the parameters for conducting desk-audit were communicated to the field formation but the compliance level was negligible, the sources maintained.
Sales tax officials also outrightly rejected this viewpoint on the plea that industrial notes were not the only tools for carrying out sales tax audit. Secondly, the CBR has formulated dedicated teams for formulating industrial notes of different sector. The preparation of these notes is obviously not a single day job and it requires some time for completion. Moreover, even if industrial notes are not available, desk-audit could be conducted on the basis of taxpayer's profiles reflecting that less amount of tax is paid by certain individuals.
Sales tax officials also contested that preparation of industrial notes was not confined to members, but specific teams were also assigned the job. The desk-audit would be conducted on the basis of analysis of returns by an exclusive cell comprising Deputy/Assistant Collectors, senior auditors, who would be bound to take prior permission of collector for obtaining any document, they added.
They further argued that taxpayer's past record including input output, production data, export, electricity consumption and many other factors are enough to carry out desk-audit.
Information collected by Business Recorder revealed that the CBR has not started desk-audit because it was not clear how to conduct desk-audit after suspension of field audit. The theme of desk-audit was to analyse information about a taxpayer while sitting in the office and in case of any concrete evidence, notice may be served on the taxpayer for compliance or recovery.
Now, the CBR has decided to take up the issue of sales tax audit in the upcoming Collectors of Sales Tax Conference. The authorities will get the feedback of the collectors regarding suspension of audit and desk-audit. The recommendations will be subsequently taken up in the next Board-in-Council to decide whether to resume audit or not, sources said.
The sources said that resumption of sales tax audit would only be possible in case the CBR managed to improve certain areas and modified rules and regulations of audit. These encompasses selection criteria, monitoring of staff engaged in the audit, reporting of audit reports, examination of audit reports and training of workforce of auditors, which needed at least six months for training. Other problems pertaining to audit have already be handled by the concerned authorities. These include introduction of yearly audit, uniform audit report, specimens of standardised audit reports and annexures.
A sales tax consultant stated that the audit function was already considered to be the weakest function of the CBR's administration, its suspension has added fuel to fire. Needless to mention, the detection of offences such as under-reporting of sales, over-reporting of input tax credit and use of fake invoices require field audit by well-trained auditors and officers rather than desk-verifications/audit.
He said that basically it was a gimmick of posturing to make the CBR tax-friendly by suspension of audit. It is wishful thinking of tax department to make the CBR as a popular department. No where in the world revenue department is considered popular or tax friendly, the consultant said.
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